Western Digital is seeking international arbitration to stop partner Toshiba from selling its chips arm without its consent, potentially derailing a much-needed capital injection. Kate King reports.
The chips are down for Japanese conglomerate Toshiba after its partner Western Digital Corp announced legal action against the company. It says Toshiba's attempts to sell its flash memory chip business without consent, is a breech of their contract (SOUNDBITE) (English) RICHARD HUNTER, HEAD OF RESEARCH, WILSON KING INVESTMENT MANAGEMENT, SAYING: "Toshiba is in a fairly hard place at the moment even though it's just about returned to profit it's saying that it's going to be in a kind of negative equity loop for a few years now unless it can sell that chip business." Toshiba needs the sale, which could fetch as much as 20 billion dollars, to plug a hole in its books On Monday its CEO said the company ended 2016 with a 8.4 billion net loss and negative shareholder equity worth 540 billion. (SOUNDBITE) (Japanese) TOSHIBA CORP CEO, SATOSHI TSUNAKAWA, SAYING: "We take it seriously that we calculated such a huge net loss, and from 2017 onwards we will be putting efforts in our financial standings." In preparation for divestment, Toshiba transferred ownership of its memory unit to a separate legal entity and it says US-based Western Digital has no grounds to interfere. They disagree and have asked for international arbitration to help settle the matter. (SOUNDBITE) (English) RICHARD HUNTER, HEAD OF RESEARCH, WILSON KING INVESTMENT MANAGEMENT, SAYING: "I think it would be a brave investor to be entering the fray just at this moment in time. Inevitably as in so many other things it depends on the individual investors attitude to risk." Despite the fresh setback, Toshiba shares climbed 4.2 percent, buoyed by news that progress is being made towards capping some of its liabilities at its now bankrupt U.S. nuclear unit Westinghouse. But a legal battle could delay and even end plans to return Toshiba stability.